The U.S. Court of Appeals for the Third Circuit recently held that the tolling doctrine set forth in American Pipe & Constr. Co. v. Utah does not apply where the named plaintiff in a failed class action commences a subsequent lawsuit outside the statute of limitations.
In so ruling, the Court held that American Pipe only tolls the statute of limitations for unnamed members of the putative class.
A copy of the opinion is available at: Link to Opinion
In April 2004 and March 2005, a doctor received two unsolicited faxes from a pharmaceutical company and a healthcare supplier (Defendants). Shortly thereafter, the doctor filed a putative class action against the Defendants in state court (State Court Action), alleging that the Defendants transmitted thousands of similar faxes in violation of the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 (TCPA).
On June 27, 2008, the judge presiding over the State Court Action entered an order denying class certification. Since that time, the State Court Action has proceeded on an individual basis, and has yet to result in a final judgment.
On June 26, 2011, the Doctor and his professional corporation (Corporation) filed a separate class action against the Defendants in federal court, alleging violations of the TCPA based on the same April 2004 and March 2005 faxes at issue in the State Court Action.
The Defendants subsequently moved for summary judgment, contending that the four-year federal "default" statute of limitations set forth in 28 U.S.C. § 1658 barred the complaint in its entirety. The trial court agreed, rejecting the Plaintiffs' argument that the denial of certification in the State Court Action tolled the statute of limitations on their individual and class claims.
This appeal followed.
As you may recall, American Pipe provides that a timely-filed class action complaint tolls the applicable statute of limitations for unnamed putative class members until the court issues a ruling on class certification. Under this doctrine, unnamed individual members of a failed class can either intervene in the existing case or file their own suits.
The Third Circuit began its analysis by noting that a recent Supreme Court of the United States ruling resolved any issues as to whether the State Court Action tolled the statute of limitations on the Plaintiffs' class claims. During the pendency of the appeal, the Supreme Court issued its opinion in China Agritech v. Resh, which made clear American Pipe tolling does not allow putative class members to bring a "follow on" class action once the statute of limitation expires. 584 U.S. ___, 138 S. Ct. 1800, 1804 (2018).
Next, the Third Circuit addressed whether American Pipe tolling applies where the named plaintiff in a failed class action, such as the Doctor, asserts new individual claims outside the statute of limitations. Although the Supreme Court had not directly confronted the issue, the Third Circuit determined that the two policy rationales underlying American Pipe made clear that the doctrine only applied to unnamed class members.
First, American Pipe tolling reinforced the principles of judicial economy embodied in Rule 23, as it obviated the need for putative class members to intervene in the class case or file duplicative individual actions. In the Third Circuit's eyes, this concern was inapplicable "to named plaintiffs, who have already filed their claims; neither efficiency nor economy would be advanced by allowing named plaintiffs to rely on their own filings."
Second, American Pipe protects the interests of putative class members who are unaware of the pending class case, and have no obligation to take any action with respect to the suit prior to the ruling on class certification. The Third Circuit reasoned that this policy rationale was clearly inapplicable to named plaintiffs, who are "necessarily aware of any denial of class certification such that tolling is unnecessary to protect their interests."
Drawing further support for its conclusion, the Third Circuit noted that the named plaintiff's claims always remain viable following the denial of class certification, as the failed class case simply transforms into an individual suit. Given this, allowing the named plaintiff to file repetitive individual suits would undermine the purpose of American Pipe by squandering judicial resources.
Thus, the Third Circuit refused to extend American Pipe tolling to the Doctor's individual claims.
Finally, the Court explained that the same policy rationales weighed against extending American Pipe tolling to the Corporation's individual claims.
Although the Corporation was not a party to the State Court Action, the Third Circuit rejected the notion that it qualified as the "type of unaware, absent class member that American Pipe was designed to protect." To the contrary, as the Doctor had at always been the sole shareholder of the Corporation, there was no real debate that the Corporation was fully aware of the State Court Action and the order denying class certification in that case.
The Third Circuit also emphasized that any judgment in favor of the Corporation would only benefit the Doctor, its sole shareholder. As a result, tolling the Corporation's claims would subvert the purpose of American Pipe by permitting the Doctor to pursue his individual claims "for a second time" outside the statute of limitations.
Accordingly, the Third Circuit concluded that American Pipe tolling was inapplicable to all of the Plaintiffs' claims, and affirmed the trial court's order granting summary judgment in favor of the Defendants.
Ralph T. Wutscher
Maurice Wutscher LLP
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